Beyond Brexit has been saved
Regulatory considerations for banks and the future of European capital markets
Since Brexit, banks operating in both the UK and EU have had to navigate an evolving regulatory and supervisory landscape affecting the nature of capital markets and cross-border activity between the two jurisdictions.
While some uncertainty remains, our latest capital markets update, Beyond Brexit, finds that the EU and UK are continuing to head in similar directions to those we had previously observed: the EU is setting a more “closed” regulatory course for its capital markets – a regionally segregated market; and the UK is pursuing a more “open” approach – a globally-integrated market.
As firms adapt their business models to meet upcoming regulatory deadlines and consider their response to remaining areas of uncertainty, this paper identifies the UK and EU’s future direction of travel across various regulatory developments – helping banks to stay ahead of the curve.
How banks can optimise their responses in the face of uncertainty
While some uncertainty remains, the details of each jurisdiction’s strategies and how various strands of policy developments will interact are becoming clearer. We also have more information on the level of flexibility regulators will show around their core strategic direction and the implications for the viability of banks’ European business. The relevant policy developments include: the EU’s IPU requirements and treatment of third country branches, as well as the UK and EU’s respective approaches to cross-border services, booking models and substance; portfolio delegation; CCP equivalence; regulatory divergence; and trade deals.
Across a range of policy areas, the EU is driving towards ensuring that the substance of banks’ business and operations for European market activity – governance, risk management and trade booking – largely takes place within the Single Market. Nonetheless, the EU has shown flexibility on issues such as portfolio delegation, where a more open approach continues to be in the EU’s best interests. The EU’s proposed approach to CCPs and clearing (the UK’s temporary CCP equivalence was extended until June 2025, despite the EU’s intention of onshoring euro-related clearing activity) has demonstrated the practical challenges to establishing new market structures pivotal to the EU’s strategy.
The UK continues to support market activity taking place on a cross-border basis, consistent with its stated desire to be an “open and global financial hub”. However, the UK’s approach could come into tension with EU desires to attract business. While we expect the UK to remain committed to its open approach overall, this tension could mean the UK revises certain aspects of its open regime. In this regard we are watching closely what happens to the UK’s review of its overseas regime, particularly the Overseas Persons Exclusion.
Faced with these developments and remaining uncertainty, this paper sets out a range of “no-regret” actions that banks should consider taking in order to prepare themselves regardless of the eventual landing zone of UK and EU regulation.
About the Centre for Regulatory Strategy
The Deloitte Centre for Regulatory Strategy is a powerful resource of information and insight, designed to assist financial institutions manage the complexity and convergence of rapidly increasing new regulation.
With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s regional and international network of experienced risk, regulatory, and industry professionals – including a deep roster of former regulators, industry specialists, and business advisers – with a rich understanding of the impact of regulations on business models and strategy.
You can find more reports like this from the EMEA Centre for Regulatory Strategy at: Deloitte.co.uk/ECRS.